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Friday, October 22, 2010

Amazon reported spectacular September quarter results -- sales up 39% and profits up 16%, from a year ago. At the same time, the U.S. federal government concluded a September fiscal year-end with a $1.3 trillion budget deficit, or $325 billion per quarter on average.

More than any other retailer in America, Amazon has its sales spread across every single zip code, every single neighborhood. Its spectacular growth in revenue and earnings comes as a result of its superior knowledge of what works in terms of selling to the American people. Clearly the federal government, with its record deficits and abysmally poor results in terms of stimulating business and employment, could learn a thing or two from Amazon's methods to achieve economic growth.

What is Amazon's secret sauce? The key to Amazon's success is that it conducts a never-ending series of experiments in terms of what works and what doesn't. Basically, here is how they do it:

Amazon divides its customer base into two. Try method number one on the first half of the base, and then try idea number two on the second half. Measure the outcome. Then apply the more successful method to the entire customer base. Repeat with a new experiment. Repeat, repeat...

This relentless pursuit of improvement, by conducting a never-ending series of experiments on 50% of the customer base, has made Amazon America's most successful retailer. So how can Washington DC learn from Amazon to improve economic performance, maximizing growth and prosperity?

The answer is easy, really: Divide the U.S. into two parts, each applying the economic policies and principles of the two political parties. Each political party will get four years to start, with a veto-proof majority, in each of these two new Americas.

Let's give Obama and his fellow geniuses the first draw: They can pick up to 25 consecutive states, out of whom at least 23 need to be geographically consecutive if they also pick Hawaii and Alaska. The Republicans get the other 25. Then let the competitive race begin, just like it works at Amazon every day, in pursuit of economic performance.

The federal government in the 25 Democrat states would implement Obama and Biden's vision for rising marginal tax rates, stiff corporate taxes, increased capital gains taxes as well as on dividends, detailed regulation of all business activity, government-defined health care, massive government spending on just about everything (except police and military). Basically, a three-step economic plan: If it moves, tax it. If it continues moving, regulate it. If it stops moving, subsidize it.

On the Democrat side of America, there would be unrestrained stimulus. The government would spend as much money as the government departments want. There would be no shortage of money because taxes would be raised at every step of the way. Alternatively, the Democrat government would just print the money, so-called "Quantitative Easing." Printing money was so successful in Zimbabwe and Argentina, as well as in Germany in 1920, so why not try it here?

Obama would probably introduce a new, simplified income tax form, with only three lines:

1. How much money did you make last year?2. How much have you got left?3. Send it in.

In the Republican 25 states, led by -- say, FedEx CEO Fred Smith as President and Rush Limbaugh as Vice President -- there would be no income tax, business tax, sales tax or any other tax except that every person between the ages of 25 and 65 would have to pay $4,000 per year. With a total population of around 150 million people, that would imply approximately 100 million such adults and therefore $400 billion in tax revenue. This would be four times JFK's 1962 federal budget of $100 billion. It would pay for national defense and federal law enforcement, but nothing else.

On the Republican side of the 25 state fence, there would be no business regulations, and people would be free to do whatever they want to do -- or not to do, and build, start a business, buy, sell, whatever -- without any red tape. No permits, no bureaucracy, no forms to fill out. You make money, you get to keep it -- just send the government $4,000 per year. No income tax form, no sales tax to calculate, no accountants or lawyers to hire.

If we Americans would organize ourselves to conduct this Amazon-style experiment, what do you think would happen? After the first four years were over, we could measure the results. Which side had more economic growth? Which side saw more prosperity? It is clear that there would be some sort of a result, from which we could learn.

If Washington DC is serious about improving the performance of the United States, it would immediately put in motion a plan to implement this experiment, as Amazon does every day. As I write this [Oct. 21], President Obama is having dinner with Google in Silicon Valley. He could start by asking Google's management where they would choose to put their headquarters if the country were so divided into two new 25 state countries.

Amazon has shown the way, with superb performance -- 39% revenue growth and 16% profit growth this September quarter alone. It is time for the federal government of the United States to follow Amazon's example and divide itself into two, for a similar experiment of two different economic policies.